Both the pace and pattern of growth are critical for long term and sustainable poverty reduction. Private sector development is crucial for increasing the pace of growth. But the way the private sector develops also has a strong bearing on the pattern of growth, influencing whether growth is broad or narrowly based and whether it is more or less inclusive of the poor.

Developing country governments and development agencies consequently have a strong interest in fostering a policy and institutional environment that enables the private sector to flourish and to act as an effective driver of pro- poor growth.

Efforts should focus on how policies combine to provide incentives that shape private sector activity. These should help to bring about such pro-poor market outcomes as more and better jobs, higher incomes, better returns on goods sold and greater affordability of essential goods and services.

There is growing recognition that in pursuing a pro-poor agenda for private sector development what matters is the degree to which economic growth provides opportunities for the poor, and the extent to which poor men and women can take advantage of those opportunities. This emerging agenda is more holistic and broader than the previous agenda, which often focused mainly on supporting enterprises considered important for the poor.

Experience has shown some shortcomings with such interventions, which have sometimes created market distortions or not been sustainable as a result of attempts to “pick winners” or to use public sector agencies or donors to provide services.

DAC Orientations for Development Co-operation in Support of Private Sector Development In 1995 the DAC published these orientations as "work in progress". They reflected a new understanding of the roles of the state and the private sector in the creation of wealth and the generation of employment - the state is primarily the architect of a positive enabling environment while the private sector is primarily responsible for the production of goods and services.